Hindalco Industries (HNDL IN) – Q2FY26 Result Update – India shines, but Novelis disappoints – Accumulate

Hindalco Industries (HNDL) delivered in-line cons operating performance, supported by strong India delivery on higher downstream volumes and higher LME prices. Q2 Aluminium cost of production inched up ~4% QoQ due to higher coal costs during monsoon. Mgmt. guided slight inch up in H2 CoP as other raw material prices have also firmed up. Going forward, consistent improvement in downstream volumes and coal supply from captive Chakla/Bandha mines over the next few quarters would drive HNDL earnings. Novelis reported an in-line quarter, however ~22% cost escalation at Bay Minette project would depress IRRs and require parent support in terms of equity infusion worth USD750m. Adverse impact of tariffs was USD54m in Q2 and going forward it is expected to get negated by higher MWP, better spot scrap spread and mgmt’s efforts to mitigate costs & reducing dependency on Canada. We incorporate higher Novelis capex, lower H2 volumes and maintain Novelis EBITDA/t assumption at USD480/USD500 for FY27/28E; which leads to ~Rs70 cut in our TP. We increase our FY26/27E cons EBITDA estimates by 4%/1% respectively as we factor in higher AL prices of USD2,633/USD2,719 and strong by-product prices in copper. At CMP, the stock is trading at EV of 5.6x/5.3x FY27/28E EBITDA. We downgrade the stock to ‘Accumulate’ with revised TP of Rs846 (earlier Rs883), valuing Novelis at 6.5x & India ops at 5.5x EV of Sep’27E EBITDA.